Chapter 3, Problem 3.31E

 (1)

To determine

Adjusting entries

Adjusting entries are those entries which are made at the end of the accounting period, to record the revenues in the period of which they have been earned and to record the expenses in the period of which have been incurred, as well as to update all the balances of assets and liabilities accounts on the balance sheet, and to ascertain accurate amount of net income (loss) on the income statement to maintain the records according to the accrual basis principle.

Accounting rules for journal entries:

• To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.

• To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Deferred expenses

Advance payment for future expenses is called as prepaid expenses. These prepaid expenses are considered as assets until they are expensed or used. For the portion of used assets, expenses would be recognized by way of passing an adjusting entry. Prepaid expenses are also known as deferred expenses, because at the time of making payment, expenses are not recognized but deferred until they are used up.

To prepare: Adjusting entry by assuming that Company T has records the purchase of office supplies by initially debiting an asset account.

(2)

To determine

To prepare: Adjusting entry by assuming that Company T has records the purchase of office supplies by initially debiting an expense account.

(3)

To determine

To compare: The ending balance of both office supplies account and supplies expense account prepared under both approaches, and determine whether they are same.